Looks Like A Mayfair Trade

NEW YORK — When the Colony Capital real estate investment group became the new owners of the Mayfair Hotel, at Park Avenue and 65th Street, after a foreclosure sale in late May, their initial idea was to maintain the property as a hotel.

Such a move would have been in keeping with an investment strategy that had already netted the company a portfolio that includes Hawaiian hotels and Pacific resorts.

But after a quick look at New York City's rising residential market--a market that brokers say still has a voracious appetite for luxury prewar condominiums--Colony Capital did an about-face and decided to hire Donald Trump to develop 60 to 70 high-priced condos.

The apartments will range in size from 1,500 to 5,000 square feet and will be priced at as-yet-undetermined millions of dollars.

Colony Capital, based in Los Angeles, has acquired $4.5 billion in real estate-related assets since it was founded six years ago.

With its purchase of the Mayfair, on one of the most prestigious blocks of New York City, and its coming purchase of the venerable Stanhope Hotel on Fifth Avenue and 81st Street, Colony Capital is switching its real estate strategy in New York City from a loan portfolio of distressed properties bought from the government to a few carefully chosen single assets.

The company also is changing its strategy for managing those assets: it is becoming more involved with actually developing the properties.

In the case of the Mayfair, which Colony bought for $15 million, it recently hired Trump to develop the condominium apartments.

Shortly after Colony bought it, said Lawrence A. Kestin, the Colony principal in charge of East Coast assets, the company realized it might make more money with at least part of the building devoted to apartments.

According to one real estate agent who was consulted, at one time the plan was to keep approximately half the building in use as a hotel.

"Over time, we realized there was a huge pent-up demand for condominiums and that we had one of the best locations in all of New York for prewar luxury condominiums," Kestin said.

Indeed, there are no prewar condominiums on Park Avenue from 62nd Street to 95th Street, said Diane Ramirez of Halstead Property Co., a Manhattan real estate company.

In an interview, Kestin said the company had begun a $30 million to $35 million renovation to convert the Mayfair to condominiums, hiring the Sunshine Group, a marketing company often affiliated with Trump.

With the Stanhope, Colony will spend $5 million to $10 million renovating--making more rooms by splitting up what Kestin called the "disproportionate number of suites" and turning only the penthouse into a long-term rental.

Trump won't be involved at the Stanhope, which, Kestin said, will shut down sometime this month--right after Colony's purchase--and will reopen in March.

Several weeks ago, there was speculation in the real estate community that the Stanhope, too, was set to become condominiums because hotel staff members had received termination notices, but Kestin said the notices were given only because the renovations would shut down the hotel for several months.

Kestin said the Stanhope would be acquired without buying the land underneath, which will be leased. That rules out turning the building into a condominium; state law requires that the land under any condominium development must be owned by the condominium.

The company will be busy in New York: it moved to buy three large hotels only in the last six months; at both the Stanhope and the Inn on 57th Street, a moderately priced 600-room hotel between Ninth and 10th Avenues, Colony has allied itself with Richard Born and Ira Drukier, local hotel developers.

At the Inn on 57th Street, there is a $12 million renovation going on while the hotel remains in business; work is scheduled to be finished sometime in the next three months. Kestin said this "businessmen's hotel" will become affiliated with the Holiday Inn chain.

"We've always had a presence in New York," said Kestin, who was vice chairman of the real estate department of the law firm of Rogers & Wells, where he worked from 1978 to 1990.

Colony got its start in 1991 by buying at auction West Coast assets that had been seized by the Resolution Trust Co. after failures by savings institutions.

Two years later, Colony bought a group of subperforming and nonperforming loans on New York and New Jersey assets, approximately a third retail, a third multifamily and a third office buildings.

The book value of those assets was $325 million, Kestin said, adding that Colony had paid "less than 50 percent of that figure."

The investment group, he said, has sought to acquire what it believes to be undervalued loans and assets all over the world: from a chain of movie theaters in Britain to a string of resorts in Southeast Asia to a group of hotels in Hawaii.

And while Colony does not see itself as a developer, Kestin said that with the latest purchases in New York, the company is moving more toward the development business.